14 Things to Reduce Risk of a Customer Not Paying
Take a proactive approach when giving your customers credit
The longer an invoice is outstanding the harder it is to collect and there is no point in making a sale if you don’t get paid for it. So you need to reduce risk
Reduce Risk of Customers Avoiding Payment
1. Give customers no more credit than your business can afford. If you cannot afford to give 30 days’ then only give 14 days.
2. Don’t give credit by default – if they don’t ask for it, don’t give it. If you delay in invoicing a one-off sale because of time restraints, you may not get paid at all.
3. Don’t give ‘one-off sale’ customers credit – they will not be motivated to pay if they are not going to buy from you again.
4. Be alert for customers who have no intentions of paying in the first place. You need to assess your customer carefully – especially the ‘payment on completion’ jobs where you get paid after the job or service has been done.
5. Ask for a deposit before buying appliances or equipment, particularly if it is non-returnable or need to be paid by COD.
6. Give all customers who ask for credit, an application and assess it thoroughly for creditworthiness and to reduce risk. That also means phoning the referees.
7. Don’t just rely on a credit agency report. Not all businesses report defaults to the agency. Hence the report could be incomplete and not give you a complete picture of the customer’s credit history.
Monitor Credit Account Customers Constantly
8. Constantly monitor credit account customers for cash flow problems. Just because they were creditworthy when the account was opened does not mean they will not have a problem in the future. This will reduce risk
9. Phone within a couple of days after invoice-due-date to identify customers with cash flow problems.
10. Place a customer with cash flow problems on stop credit, don’t make the problem any worse for you or the customer.
11. Follow an Overdue Invoice Strategy and train your customers to pay by due date.
12. Make sure the customer is advised, understands and acknowledges your terms of trade before you open an account for them.
13. Follow up overdue accounts consistently, preferably weekly and reduce risk.
14. Set up a proactive Debtor’s Ledger Management system to control customer debt.
Link to the Queensland Government Business website on managing debtors
If you would like to find out how healthy your debtor’s ledger system is, you can download a FREE office procedures assessment questionnaire from Biz Skills website to identify the gaps in your system. Don’t return the questionnaire for a score as no two businesses are the same. The document is designed to stimulate your thinking so you can evaluate how good a system you would like in your business.
To learn more about proactively training your customer to pay by due date, Biz Skills Debtor’s Ledger Management and Effective Debt Collection Strategies online lecture courses include strategies to reduce the current customer debt and to effectively collect future overdue invoices. To see the difference between the two courses download the ‘Effective Debt Collection Strategies versus Debtors Ledger Management’